Client Case Study

Hedging the ProcessAutomating the

Hedge Fund Trade Summarization Process

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Introduction

Today’s Hedge Funds and their trade related activities span multiple brokers and trading platforms. Currently, the technologies behind these platforms are provided either by the fi nancial brokerage fi rm or consist of multiple off-the-shelf applications. Traders use these applications to trade and hedge equities and options. At the end of the day these trades are submitted to the fi nancial brokerage fi rm for settlement, a process which is tedious at best and if not completed cor-rectly, can have adverse effects. The conventional manu- al process that brokers engage in for settlement only increases the chance for error.

One of DATA Inc’s clients, a global fi nancial brokerage fi rm, has many Hedge Fund clients who use them as their prime broker. In the past, these hedge fund clients processed their end of day (EOD) summarization manually, consuming unnecessary time and resources and increasing the potential for error.

In order to improve client experience, eliminate manual overhead, increase effi ciency and ensure consistency in the results, the brokerage fi rm required a tool to automate their client’s end of day summarization procedures. DATA Inc. developed a simple, yet powerful, user-friendly tool to automate the summarization process.

The new custom desktop application integrated and automated the tedious process of EOD summarizations, saving time, money and reducing errors.

The Challenge

In the past, each trader had their own method of summarizing trade scenarios. Their main focus was to determine the EOD posi-tion for a symbol held by the client. For this, some of the trade details were left as they were (not summed up or average priced) which ultimately created inconsistencies in the data and information. In addition, manually updated data and information in a lot of cases did not take into account prorated commissions nor open and close indicators, further causing disparities in the data and information.

While on the surface, the immediate answer was to provide a solution to automate the process, the development of such a solu-tion would have been easier said then done, and additionally, the need to keep costs as far down as possible eliminated the pos-sibility of using conventional databases and centralized servers for the application.

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Hedging the Process

Client Case Study

Country or Region: New York, NY Industry: Finance (Brokerage)

Profi le: A leading fi nancial services fi rm that actively engages in trading through several major brokerage houses throughout the world.

Client Case Study

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Hedging the Process (...continued)

“The client needed a solution that eliminated the errors and inconsistencies experienced through the manual process” said Denny Panakal, Senior Project Manager with DATA Inc. “However due to the scope of the project, our choices of appropriate technology for engagements were slim.”

The Solution

After evaluating various technology approaches DATA Inc. decided to go with a simple desktop-based application approach, with a stand-alone database engine that specifi cally catered to the cilent’s need with no network hassle.

DATA Inc. developed the system using a combination of Microsoft-based technology including .NET, which provided an easy-to-understand user interface. The data store and business layer containing the summarization process was implemented using Microsoft SQL Server, allowing for ease of installation and confi guration on the trader’s desktop computer.

In addition to the selection of the most cost-effective technology platform, the project team of DATA Inc. immersed themselves in the study of the conventional EOD business process using DATA Inc’s Project Management Solutions System as a central reposito-ry for accumulating information, developing requirements and ultimately a project plan. This allowed the project team to analyze the appropriate trade types to develop the solution, eliminating consistencies along the way.

The newly developed application reduced the time for the summarization process down to less than a minute by automating a multitude of previously manual processes including summarization of similar trades, average pricing splits and if required, close out of the ‘Start of Day’ position ultimately leaving the remaining trades as Open.

“Microsoft technology, specifi cally the .NET framework was critical in helping to make this concept become a reality,” says Charles Rich, Chief Technical Offi cer and Director of Client Projects for DATA Inc. “The new application can be launched by the click of an icon, saving brokers time and money when it comes to dealing with end of day summaries.”

The Results

The new Hedge Fund Summarization application brought a drastic business process improvement in the way hedge fund clients were handling end of day trading activities. Hedge Fund clients embraced the application, reaping the benefi ts from day one. There was no overhead for installation and the client found it very simple to use and understand. Ultimately, the system not only saved the client from spending hours on manual summarization of fi nancial data, but also gave them the confi dence that their re-sults were correct and consistent. “The integration of Microsoft technologies along with a thorough understanding of the tedious process engaged by the client allowed DATA Inc. to develop a solution that effectively streamlined a tedious and time-consuming process with Hedge Funds” said Denny. “Our thorough understanding of the fi nancial industry, coupled with our research and development capabilities allowed us to deliver a solution on-time, under-budget and to great effi ciency.”

Benefi ts and Features

• Cost effectiveBy using .NET and other Microsoft-based technologies, the client did not need to invest in any expensive hardware or en-hanced software infrastructure.

• No installation overhead:With no network overhead, and easy-to-follow procedures, the application could easily be installed and confi gured. The application is also scalable, whereas when scope and access requirements change, the application can effectively run from a network platform with all databases in a central location.

• Rich, yet simple User Interface:Minimal instruction is required for effective use of the application through a rich-yet simple user interface. All processes present in the interface are self explanatory.

• Ease of useWith just a click of the desktop icon, users can start the process by uploading the input fi les through a standard windows interface. The process can then be started by a single click. Upon completion, the output can be saved to familiar formats such as CSV, DAT, or XLS using Windows fi le folder control.

• Time SavingThe application provides a summary in less than a minute; a signifi cant reduction in processing time as compared to the manual process which used to take up to 3 hours based on a day’s trading activities.

• Powerful database The business logic of the application is implemented using robust and modular database system, ensuring that results are consistent and delivered fast. Future enhancements can also be easily incorporated into the procedure and rolled out to the client easily.

• Auditing & CleanupThe application maintains historic data for desired amount of days for audit purposes. The log tables within the application help in effi cient audit trails of tracing the summarization process done for a trade.

• Consistent and error-free outputThe computations are completely automated using a pre-defi ned set of rules. All practical trade scenarios have been con-sidered and business rules incorporated, thus rendering consistent results for all situations. A rigorous and thorough testing

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Client Case Study

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process using DATA Inc’s Quality Assurance Methodology also ensured that the application could handle any practical scenarios.

• Minimal maintenance overheadSince the application uses a stand-alone database engine, minimal maintenance is required and the cleanup procedures take care of data maintenance.

• ScalabilityThe architecture of the application is designed to be scalable, easily accommodating for future enhancements. Any changes in the database server or fi le locations are easily confi gurable and user interfaces can be updated to handle any changes in the input fi le format. Changes to the business rules and procedures if needed can also be applied directly into the database.

Technical Details

1. User Interface: Visual Basic .NET running on .NET Framework

2. Business layer and data storage: Microsoft SQL Server

3. Environment:

a. 1 PC with single CPU running Windows XP b. 1 gigabyte (GB) addressable RAMc. Can also be confi gured in a central server and multiple client PC environment

4. Capacity:

Transaction Volume: Can handle up to 1 GB of dataRate of processing: Execution time depends on the trade scenarios. Typically less than 5 sec for 50KB of dataDatabase size: Can store 4 GB of data.Users: Single concurrent user. Can be scaled to multi-user if installed in client-server environment

© Copyright DATA Inc. 2012 This publication and its contents are proprietary to DATA Inc. No part of this publication may be

reproduced in any form or by any means without the written permission of Data Inc. 72 Summit Ave, Montvale, NJ 07645